U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21095 / June 22, 2009
Securities and Exchange Commission v. Cohmad Securities Corporation, Maurice J. Cohn, Marcia B. Cohn, and Robert M. Jaffe, (S.D.N.Y. Civ. 09 CV 5680)
SEC CHARGES MADOFF SOLICITORS WITH FRAUD
The Securities and Exchange Commission today charged Cohmad Securities Corporation, a New York-based broker-dealer, as well as its chairman Maurice J. Cohn, chief operating officer Marcia B. Cohn, and registered representative Robert M. Jaffe alleging that they collectively raised billions of dollars from investors for Bernard L. Madoff's Ponzi scheme.
In a complaint filed in U.S. District Court for the Southern District of New York, the SEC charged the defendants for actively marketing investment opportunities with Madoff while knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud. The SEC previously charged Madoff and Bernard L. Madoff Investment Securities LLC (BMIS) as well as their auditors with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS.
The SEC's complaint against the Cohmad defendants alleges that while bringing investors to Madoff, they ignored and even participated in many suspicious practices that clearly indicated Madoff was engaged in fraud. For example, the SEC's complaint alleges that the Cohns and Cohmad filed false Forms BD and FOCUS reports that concealed Cohmad's primary business of bringing in investors for BMIS. This referral business comprised as much as 90 percent of Cohmad's revenue in some years, brought in more than 800 accounts, and billions of dollars into BMIS' advisory business, for which BMIS paid them more than $100 million.
The SEC's complaint also alleges that the compensation arrangement between BMIS and Cohmad indicated fraudulent conduct at BMIS. Cohmad was paid an annual percentage of the funds its representatives (except Jaffe) brought into BMIS offset by any withdrawals from those investor accounts. This compensation arrangement indicated to Cohmad and the Cohns that BMIS was not providing any real returns to investors. For example, where the client's principal investment had been $10,000, Cohmad stopped receiving fees if a client withdrew $15,000 from an account, even if under BMIS' management the account had purportedly grown to $100,000. In Cohmad's internal records, such an account was designated with a negative $5,000 number.
The SEC alleges that Jaffe also participated in Madoff's fraud by soliciting investors and bringing more than $1 billion into BMIS. The Complaint alleges, among other things, that Madoff compensated Jaffe with outsized returns in Jaffe's personal accounts that he knew, or was reckless in not knowing, were manufactured by BMIS employees entering fictitious, backdated trades onto trade confirmations and account statements for his personal accounts at BMIS.
The SEC's complaint against the Cohmad defendants specifically alleges that Cohmad violated Section 17(a) of the Securities Act, Sections 10(b), 15(b)(1), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b3-1, 15b7-1 and 17a-3 thereunder and aided and abetted violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-3 thereunder; that the Cohns violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder and aided and abetted violations of Sections 10(b), 15(b)(1), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b3-1, 15b7-1 and 17a-3 thereunder and Sections 206(1), 206(2) and 206(4) of the Advisers Act of 1940 and Rule 206(4)-3 thereunder; and that Robert Jaffe violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of Sections 10(b), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b7-1 and 17a-3 thereunder and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-3 thereunder.
Among other things, the SEC's complaint seeks injunctions, financial penalties and a court order requiring Cohmad, the Cohns, and Jaffe to disgorge their ill-gotten gains.
The SEC acknowledges the assistance of the Trustee for the Securities Investor Protection Corporation. The SEC's investigation is continuing.